Tången Industrikapital AB (publ) (TANGENB) Earnings Call Transcript & Summary

Welcome to Tangen Q2 Earnings Call 2026. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Nina Bergman; and CFO, Per Andersson. Please go ahead.

A warm welcome to the presentation of the Tangen's report for the second quarter 2026. It's the first quarter as a listed company, so it's a milestone for us. I'm Nina Bergman, and I'm CEO of Tangen. And with me today, I have Per Andersson, our CFO. And as I said before, after the presentation, we will leave room for questions. All right. So let's -- okay. Before we go into the second quarter financial results, a brief introduction to Tangen. Tangen is an acquisition-driven Nordic industrial group. We are investing in companies in the 3 business areas that you see on the right hand. And it's -- we invest in solid, profitable companies with a strong value proposition. And the business is characterized by regulatory environment, leading to high barriers of entry and recurring revenue. And the business is also pushed by underlying spending such as public sector spending, including defense, infrastructure, but also trends of reshoring and stricter regulations. And we source company to a great majority in-house, and that creates long-term relationship building for the future and also attractive valuations. And important for us is to have a steady phase of acquisitions throughout the years, and we aim to acquire 4 to 6 companies per year. The focus is profitable growth in combination with a strong cash conversion. And that in combination with a low leverage and strong cash position, that will ensure that we will be able to invest in great companies in all times going forward. All right. So then the second quarter highlights. So we must say that we are really proud of how the business is performing, and we continue the great development from the first quarter. And we continued the positive trend from the beginning of the year. It's a strong organic growth, both top line and in profitability, but also new companies being acquired during the year also has strengthened their sales and profitability. And it's also a dedicated work to increase the profitability and cost control. All business areas delivered overall in line with expectations, and the businesses towards infrastructure, container services and emission control, those delivered beyond expectation, and we see strong demand in markets also including defense and public sector. And really important, we have a high cash conversion, and that in combination with the primary in the IPO, Tangen is now in a net cash position. And to have a strong balance sheet and to be self-funded, that is key for us in all ways, to always stand strong and to be able to do acquisitions in a steady phase. In the second quarter, we acquired one company, NT Smidesteknik, a niche company that will strengthen the business area services. And in addition, we have a really strong M&A pipeline that will be executed in the second half of the year, and that is through all the business areas. Okay. So looking at the figures overall for the second quarter. We have a revenue of SEK 647 million. It's a growth of 60% compared to last year. EBITA, SEK 88 million and corresponding to a margin of 13.6%, and it's a total growth of 116%. And the growth is a combination of organic growth, acquired company and increased profitability in some companies taking actions and also via dedicated work to increase margins. And the overall businesses are performing better compared to prior year. We see that last year. The last year's second quarter were impacted by a waiting industry and such as Liberation Day. Cash conversion, continued strong cash flow, SEK 65 million for the quarter, slightly lower than the first quarter due to revenues higher in June. And given the cash flow and the historic low debt and also the primary in IPO, we are now in a net cash position. And we have also done a refinancing in connection with the IPO. All right. And if we look at the development of the 12-month full year and also taking into consideration the -- if we -- acquisition adjusted figures as we were the owners for 12 months, we are now in a revenue of SEK 2.4 billion, and that's SEK 359 million and almost 15% profitability. And now looking more into the details, Per.

Thank you, Nina. So yes, let's now look more closely into the organic growth for the quarter. First, we are really happy to follow up a very strong first quarter with a solid second quarter when it comes to organic sales and EBITA growth. In Q2, net sales increased from SEK 403 million to SEK 647 million, corresponding to a total growth of 60%. 45% of this growth came from acquisitions, while we had 14% organic sales growth with several companies in the portfolio delivered solid growth numbers. The main growth came from the business area Service Solutions that continues to grow at a high pace in this quarter as well. The currency impact was about 1%. In total, our currency exposure is quite limited with the operations in Finland and Norway being mostly exposed to other currencies than SEK. EBITA increased even more than sales in the quarter and grew 116% up to SEK 88 million. During this quarter, we have adjusted for SEK 9 million in IPO expenses that have been added back. Acquired EBITA grew 101%, which is obviously more than sales growth. The EBITA margin in the acquired companies have in general been higher than what the previous average has been, which explains the higher EBITA growth compared to sales. The organic EBITA growth was 13%, and 2 comments on that and the reasons behind that are: first, sales grew, especially within Service Solutions. But as Service Solutions is a business area with lower margins, the EBITA growth also came from the other business areas. Second, as Nina said, cost and efficiency improvements. Several companies have improved margins compared to last year due to efficiency measures, both from cost cuts, but also in terms of scalability, meaning they are growing sales with an almost fixed cost base. The currency effects gave about a 2% contribution to EBITA growth. As I said before, we have fairly even in and outflows in most currencies. The only currency with an uneven flow is Chinese yuan where the SEK strengthened compared to last year. Looking at the organic and acquired growth for the first half year. And as I said on the previous page, we are really happy to continue delivering good organic growth in the second quarter as well, which together with the first quarter gives a very strong first half year. In total, sales grew 58% in the first half year, up to SEK 1.2 billion. 42% of that was acquired, while the organic growth was 16%. On EBITA, we saw a very high growth of 130% in the first half year, ending at SEK 171 million. For the half year, we have adjusted for in total SEK 17 million in IPO expenses, which has been added back, while we have excluded SEK 34 million in profit from sale of Svensk Fordonsladdning, which was a minority shareholding that was divested in the first quarter. Of the EBITA growth, 103% was acquired, while the organic growth was 27% for the first 6 months. For this period, we saw organic growth in all business areas with particular focus on Industrial Technology and Service Solutions. One should also take into consideration that during last year, some companies were a bit negatively affected by external events that caused us to take action and to cut cost and improve efficiency. And we see quite a good effect on that now, which is also a reason for the very good EBITA growth in the first half of 2026. Moving on to the EBITA development in a historical perspective, we see a gradual buildup with a steep increase in the first quarter this year. That followed our 4 acquisitions that was completed by the end of 2025. There is some variation between the quarters, but the underlying trend is clear, and we have managed to increase both EBITA and margins substantially over time. With the portfolio of now 23 companies, we expect a steady development going forward with EBITA margins trending towards our target of 14%. Cash conversion is a key focus area for Tangen. And when measuring cash conversion, we include both working capital changes and capital expenditures. In the second quarter of 2026, we had a cash conversion of 83% in relation to EBITA. For the first half year, it was 92%. Although very strong numbers, those are slightly below what we historically performed. And the reason in the second quarter is mainly that working capital had a negative impact. The reason for that is that we had a quite high portion of the total sales in June, meaning that we had some buildup of receivables by the end of the quarter, which was on higher levels than normal, although we've seen very good cash flow in July, thanks to that. Going on to capital structure. We ended Q2 with a very strong financial position and a return on capital employed of 18.5%. That was a very good improvement from the first quarter, which was 17.7%. During this quarter, we saw a combination of strong cash flow from the operations, but obviously the proceeds of SEK 400 million from the rights issue had a major impact that puts us in a net cash position. Also worth mentioning is that we do have very good operational cash flows. And the one acquisition we did in May, which was done before the IPO was actually paid cash. So to sum up, we now have a very strong balance sheet and together with a very good cash flow from operations. And together, that gives us a lot of firepower to execute on our M&A agenda going forward. So with that, I will leave over to Nina to tell you about our recent acquisitions.

Per, thank you. So the acquisition that was done in the second quarter is NT Smidesteknik. It's a niche company in the BA services. It was acquired in mid-May. It's located in Jarfalla, outside Stockholm, and it performs construction and special forging services, mainly for infrastructure and real estate projects. So customer projects is, for example, they work to the subway in Stockholm and projects like Slussen. The company has a revenue of approximately SEK 60 million and a margin of 20%, and it started this business according to plan. And in addition, we did 2 acquisitions in the first quarter. So it was Promea Platslager. It's an add-on acquisition to Gofast Gruppen and the BA services and delivering sheet metal work. And Regulatory Expertise strengthened by TriNorth Solutions, which are providing solutions for the public transport sector. We also did the divestment of 3 real estate in the quarter. And that is according to our strategy and to focus on return on capital. So it's a combination of a leaseback, but also real estate that is not being used. So that is a strategy going forward as well.

Yes. So now let's turn into the business area, starting with Regulatory Expertise. Regulatory Expertise is our largest business area consisting of companies that operate on markets with a high degree of regulatory frameworks. That can be, for instance, the airline industry, fire and hazardous environments and the critical communication. In Q2, we saw good growth in both sales and profitability with EBITA margins expanding from 15.4% to 17%. Looking at the first 6 months of the year, the development was even better with EBITA margins above 18%. Within this business, we had mixed development between the companies. Companies exposed towards the markets for emission control, data centers, critical communication as well as the energy sectors are experiencing high demand, while other sectors like lighting projects as well as some connected vehicles showed some slower sales. But given the very strong first quarter we had, that was not a surprise to us. Although we saw some mixed development in sales, EBITA and the margins developed very well. That was due to positive mix effects as well as some additions from the acquisitions made in last year. So in total, a very good financial performance for our most important business area in the quarter and in the first 6 months, really showing the strength of our diversified portfolio that can really handle different development on different markets while still growing margins. Going into Service Solutions, which is our business area for specialized professional services to different industrial customers. Service Solutions followed up a very strong first quarter with an even better second quarter. The development of the KPIs were solid, both organically and through acquisitions. Revenues in the quarter increased from SEK 144 million to SEK 236 million, which was almost entirely organic growth. The growth is coming from all companies in this business area, which is the same as in last quarter, while as I said before, Gofast is growing at the highest pace. Gofast last year entered into some new contracts with public housing companies in the Gothenburg region, which they are now growing into. But as I said, the other companies also delivered very good organic growth. Looking into EBITA margin, it developed very well in the quarter, growing from 3.3% up to 9.7%. We have actively worked to improve margins in this business area. And in addition to Gofast, the other companies are contributing very well to this improvement. And one example of this is the company Elfcon, which is a niche company that provides container and repair services. They had about 10% sales growth and managed to fully scale that on the cost base, which really contributed to a very good EBITA margin, both for Elfcon and also for the BU as well. So in total, we are very happy with the financial development of Service Solutions compared to last year. And we believe that although the growth might slow up a little bit when Gofast is growing into their new contracts, we believe that not at least with the new acquisitions we've done, that this business area will continue to operate on EBITA margins in the range of about 10% going forward. Looking at our third business area, Industrial Technology, that contains niche industrial companies with strong positions in their respective markets. In this business area, we had also a solid development in sales, EBIT and EBIT margin for the quarter and the first half year. The EBITA margin increased from 13.6% to 17.2%. And compared to last year, this business area has grown from 1 to 3 companies with the acquisitions of Westcomp and Swemco last year. The development in the number here is to a large extent driven by these acquisitions. However, all companies are actually performing very well in the period and the organic development for all companies has been very good. In general, the second quarter is very strong for NSI and Swemco due to some seasonality impact. We consider Q2 as a peak in EBITA margins as seen in a larger perspective. To conclude the financial performance in the quarter, I will go through our financial targets. And just to start with, and as we said before, Tangen developed very well in this quarter. Return on capital employed was 18.5%, which is above our target of 18%. By end of the first quarter, return on capital employed was 17.7% and the improvement is due to a combination of higher EBITA and lower debt. The EBITA growth was very high in the quarter, 116%. Our target of about 20% EBITA growth is set to reflect an average growth over time, meaning we will eventually grow into this target. The EBITA margin was 13.6%, which is not very far away from the target of 14%. The EBITA margin normally varies a little bit between quarters, and our main focus is to gradually lift the margin to be above 14%. Last, we target to be below a leverage of 2x acquisition adjusted EBITA. As per end of June, we had a net cash position and no debt. Over time, obviously, we will deploy the liquidity in acquisitions, but we will always apply a very disciplined approach to that capital allocation. And looking a bit ahead, we are fairly positive. We believe in continued growth, both organic and through acquisitions, although organic growth will not be on the levels we've seen in the previous quarter. Our long-term goal is to grow organically at a rate above GDP, and we do that by operating in markets where we see a good long-term underlying demand. That said, our total sales and EBITA will continue to grow at a high pace and our M&A pipeline looks very good. We have completed 3 acquisitions so far this year, and we are quite certain that we will complete another 2 to 4 acquisitions during the fall. So with that, I will leave over to Nina to summarize the second quarter.

Yes. And to wrap up, we are really proud of the financial performance and development of our businesses and now looking ahead to execute on the coming acquisitions for the rest of the year, as said. And besides that, the focus is to continue to develop our companies to drive profitability and cash flow together with the continuous organic growth and to continue to strive to the financial targets. And with that, we are really eager to start up the fall and continue the development of Tangen. And with that, we hand over for questions from the audience. Thank you, everyone, for listening. And I'm sure we have some questions.

[Operator Instructions] The next question comes from Anton Ingves from Nordea.

Congrats on a strong first quarter here. We maybe start off in the Service Solutions. We have very impressive figures. You mentioned a bit of the new contracts in Gofast. But can you maybe elaborate a bit more on the sort of driving forces here in the quarter and what you are seeing going forward in this area?

Yes. So yes, one company is driven by the new contracts that they will, so to say, be into in the last half of the year. This is a new normal level. But we also see growth in the container service area. And we also see a positive development of the industrial services with increased profitability. So what we are expecting is a continuous growth, but not the double-digit figures.

I think you can say that the development in the quarter comes from good sales growth in actually all companies in these business areas. And then we have 2 companies that have really improved their efficiency, so -- which has contributed very well on the margin as well despite the high growth in Gofast.

Okay. That's very clear. Sounds promising. And on the same note on the sort of improved profitability in the area, I assume full target is quite a big part of this. How far have you come in sort of the profitability improvement here? Is it still scope for sort of further improvements in the coming quarters?

It is. So that's still ongoing work to continue to develop that profitability. And we must comment on Elfcon. It is in the container service as well. So with the same fixed costs, so to say, they are able to expand and grow on top line that will be a straight line to the profit level.

And I think looking a bit more on the composition in that business area, it previously consisted of 3 companies: 2 platform companies and one more of an Elfcon, a niche company. Now we acquired NT Smidesteknik, which is also more of a niche company with a higher margin. And going forward, we're looking at that business area. I think one way to also improve the margins here is to also look at these niche companies with normally a higher margin, so we can build a good portfolio in that area.

Yes. Okay. That's very clear. If we sort of move on to Regulatory Expertise, overall, quite solid momentum here. But you mentioned some sort of softer demand, maybe particularly in the lighting fixtures. Can you provide a bit more color on this and sort of the momentum here in the business going into H2?

Yes. Just to start with, this is our biggest business area. And obviously, this is more of a diversified portfolio than the other ones, meaning that some companies are performing well and some are not performing that well for the moment. But what we can see is that we have certain markets with very good demand. And as we said, lighting product, that's, in particular, some companies that are exposed to some markets when it comes to industrial lighting that has grown a lot before. Now we see a bit slower demand. It could be various reasons we have both that we come from quite a strong last year in that area. And for some areas, we also see some uncertainty among the customers. But it's important to point out that with the companies we have with that type of product, like Aluwave and Malux, we see it differs a lot between the different customer groups. For instance, the oil and gas sector is very hot, while it could be more of the, like, construction sector that has a slower pace. So it's not a product issue. It's more of a different market characteristics, one can see.

And some degree of project that occurs in some quarter and will be recurring, but not every year or quarter. So it can be a bit impacted by that as well.

Yes. Okay. That's very clear. And a bit on the same note here. If we sort of look at the seasonality and the comparable effect here going into both Q3 and Q4 perhaps, could you please just remind us a bit of this and if there is sort of any specific things you want to highlight?

So for -- in terms of seasonality in the Industrial Technology, we have the cleaning and coating is NSI that is performing best during the summertime. So they have a strong Q2 and also going into the Q3, but then slowing off. And it's also in the Industrial Technology. Swemco for road maintenance machines, obviously, that is high season now for the summer. So that's the business is more seasonal, so to say.

So I think, as I said, Industrial Technology had a margin of 17% in this quarter. And I believe that that is the peak if you compare to the other quarters for that business area.

Okay. That's fair. And sort of one final from me here for now at least. Of these 5 acquisitions you made here during H2 '25 and perhaps the sort of 3 you've done this year, what are you seeing in terms of organic growth in these sort of companies that we are not seeing sort of in your reported numbers here?

Yes, we see very, very good growth in companies in the Regulatory Expertise, so DEC Marine, for example, and also in Swemco and the others are performing according to plan. That's right as well that the higher margin and expanding sales is also from the acquisitions that is not included in the organic growth, but all are performing according to plan or above.